How do Bitcoin Futures Work?

You probably don’t need any introduction to Bitcoin. Bitcoin is a form of digital currency that has become successful and widely used in recent years.

Bitcoin as a cryptocurrency is not tangible and as such is not financed by any government or bank institution. There are no individual bitcoins valuable as an asset as balances are kept on a public ledger that everyone has access to.

Digital assets can be volatile at times. This causes many traders to try and manage the risk involved by simply buying an asset when the price is low and resell when the price goes up.

Wouldn’t it be nice if there was a mechanism that allowed you to gain directly from betting on that Bitcoin’s price – would it rise or go down? There is no need to look further as Bitcoin Futures allows you to speculate bitcoin’s price at a specified time without actually owning a bitcoin.

What are Bitcoin Futures?

Bitcoin Futures is an agreement or arrangement to purchase or sell an asset in the future, for a fixed amount. You can conveniently use this as a way to secure profits in volatile markets or sidestep other regular investments.

Once you enter the Futures contract, both parties are to ensure that they comply by buying and selling at the specified time regardless of what the market price is at the contract execution date. It is currently possible to trade Bitcoin Futures.

Bitcoin Futures are arranged and traded on a global futures exchange. These exchanges act as intermediaries.

 How do Bitcoin Futures Work

Bitcoin Futures will allow you, as the speculator, to go long or go short on a futures contract. You will be required to deposit funds into the futures exchange of your choice and buy bitcoin futures. You will be able to realize any profits or losses once the futures contract is sold.

Bitcoin Futures allows you to monitor your losses or gains as they happen. It will show you approximately how much you stand to lose or gain should you sell your contract at the current time.

The below factors will determine the fluctuation of your profits and losses;

  • What’s the contract size: This is simply how large your contract is and how much you have in the market. Contracts can be valued in BTC, other cryptocurrencies, dollars, or sometimes fiat currencies.
  • Going long or short: Under the short contract, your balance will hike as Bitcoin prices fall and fall when the bitcoin price goes up. Long contracts will have your balances hiking when bitcoin prices go up and fall when the bitcoin price drops as well.
  • What’s the leverage: Practically, this amplifies how much your balances will rise or fall during market fluctuations. The highest leverage an exchange will offer is typically 100x. You are allowed to have different leverages on different accounts.
  • Date of Expiry: You are at liberty to settle the contract at any given time. The bitcoin futures will only close when there is an expiry date on the contract.

How do Bitcoin Futures affect Bitcoin Price?

Bitcoin Futures will automatically open up the bitcoin market in the world. This will, in turn, create a real demand for actual bitcoin, since payments will have to be paid in the actual underlying asset once the contract comes to an end.

Bitcoin futures are generally devised to balance out price movements in any underlying asset and could make the bitcoin price less volatile. Many institutions are now bound to offer their investors the Bitcoin futures as an investment option.

Having public regulated exchanges has created trust and confidence among the skeptical people, and now more than ever, the number of investors is expected to increase.

Bitcoin Futures will ease the buying, selling, and trading the cryptocurrency by bringing more liquidity in the market.

How do they affect the Blockchain Industry?

Bitcoin Futures will make bitcoin more lucrative. This means that people will become more aware of the cryptocurrency world if bitcoin prices increase quickly.

Once Bitcoin Futures is a worldwide phenomenon such that even people from countries where bitcoin has been banned, will want to invest, and altcoins’ uptake will increase, pushing the prices higher.

Bitcoin futures will end up making other stronger altcoins mimic bitcoin by introducing futures trading.

Where can you trade Bitcoin Futures? 

Bitcoin is the future in the cryptocurrency world. It is the best option when it comes to risk management and can be traded purely for profit as long as the trade is closed before the expiration date.

You can trade Bitcoin Futures in a Future exchange platform. You will need to open an account with a registered broker if you are to trade the futures contract. Futures exchanges offer you a clearing service platform.

There are two markets where you can trade bitcoin futures to realize your profits – trading on selected cryptocurrency exchanges, such as BitMex, where bitcoin trading is unregulated, or trading on the publicly regulated exchanges like the CME.





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